On the calibration of jump-diffusion models in finance

We apply a splitting strategy to identify simultaneously the local volatility surface and the jump-size distribution of a jump-diffusion driven asset from quoted European call option prices. This is done by means of a... [ view full abstract ]

We apply a splitting strategy to identify simultaneously the local volatility surface and the jump-size distribution of a jump-diffusion driven asset from quoted European call option prices. This is done by means of a Tikhonov-type regularization technique. We also present numerical examples with synthetic, as well as, real data illustrating the robustness of this method.